by
Carl Hampton
02/10/2010
In the broad spectrum of the English
language there are a few phrases that are
known to turn heads and turn stomachs; scam,
foreclosure, and audit are just a few. They
all pertain to things that could potentially
cost us a lot of money and situations we
don’t want to find ourselves in. Well, how
do you achieve the goal of not being
audited? How do you keep away from that one?
Well there are a lot of
common mistakes that can send up red flags
in the IRS’s system, but there are also
things you can do to keep yourself out of
trouble. Some of these things are common
sense, such as remembering to sign your
return and checking to make sure that all of
the columns add up.
The majority of
guidelines to not getting audited can be
summed up by one general idea; don’t try to
get away with things. Yes, we all have a
“friend” with some amazing story about how
much money they got back by finding
loopholes and getting around guidelines, but
that is not a smart way to go, if there is a
problem you could be facing penalties and
interest that you don’t want to be hit with.
Some common ways that
people try to get away with things on their
taxes include, overestimating donations,
under-reporting income, and over reporting
home office deductions. When it comes to
donations the IRS likes to see individuals
donate- that’s why they have programs set
into place so that individuals can receive a
deduction for their charitable works. But in
the same breathe they like to see
individuals value their donation at anywhere
between 1% and 30% if the original purchase
price. Many taxpayers either don’t know, or
choose to ignore this fact. If you have
something that you are planning to donate it
may be wise to have it appraised and have
the appraiser write a letter so that when
tax time comes around you can claim what is
fair and stand behind that claim. Another
rule of thumb with donations is the
willing-buyer-willing-seller test; this
means that taxpayers should value their
goods at a price where a willing seller
would be able to sell that item to a willing
buyer.
Another common way that
people try to get around their taxes is by
under-reporting income. This is common in
people who have jobs that work in a lot of
cash, for example servers in a restaurant
sometimes try to claim less tips than they
make, or people neglect to put the sale of
an asset on their tax forms. This is not a
good idea, if caught; you face back-taxes
plus penalties and interest. The system
isn’t perfect and you may be able to get
away with it, but in all reality it isn’t
worth the risk, the IRS has the availability
to trace accounts and the trail always leads
back to whoever failed to report money as
income.
One other way people
try to get over on Uncle Sam is by over
reporting home office deductions. In short,
just because you work from home, it doesn’t
mean that your new dining room furniture is
a business expense. Deduct only what is used
in the course of your business.
Well, with all of this information, what do
you do if you are being audited? Be honest,
be punctual with their requests, and have an
accountant or tax attorney represent you.
“Your” Money Matters by Carl Hampton
